Why Russian diamonds are so highly prized on world markets

Jul 19, 2011

Rossiyskaya Gazeta

Andrey Evplanov

Global demand for diamonds is growing and prices are gradually returning to the pre-crisis level mainly due to soaring demand in India and China. Russia is one of the world’s main diamond suppliers. In the interview below, Valery Radashevich, member of the board of the Russian Jewellers Guild, assesses the impact of the rebounding market on the Russian jewellery industry.

Valery Radashevich.

Source: Itar Tass

Could you give me an idea of the size of the Russian diamond market?

Russia produces about $3 billion worth of raw diamonds and $1.2
billion worth of cut diamonds a year, according to ALROSA. Some other
interesting figures: global production of raw diamonds stands at about $15
billion while the international market for diamond jewellery is valued at about
$70 billion. The difference is added value.

Where in Russia are diamonds produced?

A: I should first mention former state-owned enterprises: Smolensky
Kristall plant and Kristall plant in Barnaul; Kristall plant in Moscow. The
latter unfortunately went bankrupt in the early years of the market economy and
there are now several small firms operating on its core (in the Soviet times
they all had the umbrella name Kristall). ALROSA has a diamond cutting industry
in Yakutia which produces a wide range of diamonds. Another good cutting firm
is Mosalmaz, and Moscow also has a large foreign company called Ruiz Diamond. All
in all, there are about 50-60 diamond-cutting and polishing plants across the
country. But by far the most famous, indeed legendary plant is of course in
Smolensk. Along with half a dozen joint ventures with foreign companies, that
cluster in Smolensk supplies very high quality diamonds.

Is the Russian diamond-cutting industry really so powerful?

That school took shape in the 1970s as the authorities paid great
attention to the diamond-cutting industry. The Soviet economy required us to supply
the best we had to the world market. Consequently, there were extra quality
requirements to any goods that were meant for export. These criteria excluded
even the slightest defects on a diamond. If a tiny speck was chipped off or
there was a scratch, the diamond had to be polished smooth. The cutting and
polishing quality was indeed impeccable, but at the cost of extra mass. Belgian
and Israeli craftsmen do it differently - none of them would sacrifice mass,
which means value. It makes no economic sense.

Why did they not give thought to such matters in Russia?

For the Soviet planned economy, the main thing was for a diamond to
meet the GOST standard. As a result, the world market was divided into two
camps: supporters of the “Russian cut” versus the Italians, Israelis and
Indians, who used “commercial cutting” methods. The cost of a diamond produced using
the Russian method is very high. For such production to be profitable, there
had to be a market for such high-quality diamonds. Some famous brands like
Cartier created such a market as they began buying Russian diamonds
extensively. They bought “Russian-cut” diamonds because their price was well
within the price parameters of jewellery for that famous brand. The result was
top-class high-end goods.

And this is what we discovered at the height of Russian perestroika when we started travelling
to the West to attend professional forums. The foreign jewellers asked, “How
can I afford to buy your diamond if my whole product costs as much as your
uncut diamond?”

Source: PhotoXpress

At a certain point, Russian jewellers thought: we are not idiots, let’s
do it like the rest of the world does. But people would approach me everywhere,
at forums, and they would waylay me at hotels and airports, saying, “Sir, we
beg you. ‘Russian cut’ diamonds must stay. Otherwise you will lose a huge
market and we will lose unique suppliers”.

Part of the reason for these twists and turns in the jewellery industry
in Russia over the past 15-20 years is that the state tried to control an
industry that defies mathematics. That is why, like I said, the creation of a
federal precious metal and gem stone supervisory service is a step backwards.
The underlying reason is that there were no competent economists in the Soviet
Union or during perestroika, and
there are none today.

Have any unique diamonds been produced in Russia?

It is mostly Gokhran (the State Precious Metals and Gems Repository in Russia) that has produced unique diamonds. Even today,
to get a diamond of over 5 carats, Gokhran announces a tender among the
enterprises that are prepared to cut the diamond to the required criteria. Raw
diamonds are bought at an auction. If, for example, you want to have a 10-carat
diamond you must buy a 30-carat raw diamond.

If you come up with a large, outstanding diamond, it will either be kept
by Gokhran or the Diamond Fund or, if it is a private order, it goes directly
to the owner. Making such a diamond involves great responsibility and a fair
amount of risk. What if the diamond cracks or something? What could bring in
millions of dollars will turn to dust.

What should the consumer do to protect against buying inferior goods?
What should one pay attention to in choosing a piece of jewellery?

The first rule is to choose the right shop. If you approach the show
window and see that there are three or four tags on a piece (typically done on
purpose to confuse the customer as to who is the actual manufacturer), ask the
sales lady, “Who manufactured this ring?” If she cannot give you a straight
answer, that should be a warning bell.

Russia's diamond monopoly Alrosa has held its first electronic auction and sold $11 million worth of diamonds, it said on July 6.

The state-owned company, which accounts for over one-quarter of international raw diamond output, offered 108 lots and invited 30 Russian and foreign companies to participate in the sale.

Alrosa said the auction was successful and it now plans to hold regular auctions from the fourth quarter of 2011.

RIA Novosti

When you take a piece in your hands you should know the producer, and
there must be a certificate.

If you go to a brand jewellery shop, be it Cartier stuff or Swiss
watches, you know that this is a serious brand.

If you bought earrings by some unspecified producer for $200-$300 and
you or you sweetheart likes them very much, it is no big deal. But if you want
to buy something really big and costly, or a set that will be inherited by your
children and grandchildren as a family heirloom, then you should proceed more carefully.
Visit exhibitions, go to the producer and then you will be assured of high
quality.

You cannot buy anything truly valuable and costly in an underpass, a
flea market or an unnamed shop in the city outskirts. That applies not only to
jewellery, but to all goods.